Moody’s Zandi: 2013 May Feel Like Recession Unless Congress Acts

Congressional inaction on pending tax hikes and spending cuts could send the country over a dreaded fiscal cliff and make 2013 resemble a recession, says Mark Zandi, chief economist at Moody's Analytics.

The country goes to the polls in November to elect a new president and members of Congress and by year end, the Bush tax cuts are set to expire.

Yet with no clear sign as to who will be running the government, extending the tax cuts remains in doubt.

Furthermore, automatic spending cuts are designed to kick in around the same time, and the combination of hiking taxes and cutting spending could suck billions out of the economy.

Without action, the "fiscal cliff'' could shrink next year's economy by 3.5 percent, or about $575 billion, Zandi says, according to USA Today.

"If policymakers do nothing, early 2013 will be recession-like," Zandi adds.

Other experts also have a dire outlook for the U.S. economy.

The United States is experiencing its worst recovery since World War II as indicators such as weak jobs data and choppy consumer confidence numbers show the economy remains sluggish and unwilling to take off, says David Rosenberg, chief economist for investment firm Gluskin Sheff.

In March, the economy added a net 120,000 jobs, far less than hoped, while weekly initial jobless claims have repeatedly come in higher than expected. Consumer confidence figures have both surprised and disappointed, leaving Rosenberg and others concerned that recovery remains choppy and indecisive.

"It's been the weakest recovery in the post-World War II period, and that hasn't changed," says Rosenberg, The Wall Street Journal reports.

Meanwhile, Goldman Sachs economists wrote in a recent note that if President Barack Obama is re-elected but Republicans remain in control of the House and Democrats in control of the Senate, a compromise would stand some chance of becoming reality before the end of the year.

"A status-quo election (i.e., President Obama is reelected with continued Democratic control of the Senate and Republican control of the House) would imply a higher likelihood that an agreement would be reached this year, before the various policies are set to phase in or phase out," Goldman Sachs analysts write in a note.

"However, since the two parties currently hold very different views whether tax increases should play a role in deficit reduction, even under this scenario an extension would be difficult to negotiate before year end. While a permanent extension of the middle-income rates is possible (perhaps with a higher threshold than the President proposes) this seems less likely than a shorter-term extension lasting one year or less."